No matter how well you prepare, a home renovation project is likely to cost you more than you think.
I remember my patio extension project. After twelve months and double my original budget it was finally finished!
Don’t get me wrong, homes are great and create many memories…but they are also a lot of hard work.
Pick the Right Projects
Some improvements will involve mostly repairs. When the roof leaks or the foundation fails, you really have no choice but to perform the necessary work. Other projects are more discretionary in nature, and these are the endeavors that need to be selected carefully.
Some examples of renovation projects that are well known to create a good return on investment include:
Front doors. Replacing the front door is estimated to bring about a 96 percent return.
Deck addition. This upgrade will create an approximately 87 percent ROI.
Converting an attic to a bedroom comes in at 84 percent return on investment.
Garage door replacements are in fourth place at 83 percent.
Minor kitchen renovations will usually secure about an 82 percent return.
It is important to note that this formula is predicated on how long you intend to stay in your home. People who are planning for the long haul may get more mileage out of replacing items such as the roof, siding and windows than by adding a sun room.
Have a Financial Plan
How can you stack the odds in your favor for a successful project?
1. Estimate overall cost
In this stage, you come up with a ballpark figure for the upcoming job. A good rule of thumb is to add 10 to 20 percent to this number in order to hedge against unforeseen circumstances.
2. Know how much money you have to work with
Once you have an estimate of the costs, you will need to reconcile this figure with how much money you actually have or have access to. If you are cash poor, you may have to take out a loan of some kind. These can include home equity loans, cash out refinances, or a home equity line of credit (HELOC).
3. Get quotes
For best results, get quotes from at least 3 different contractors. It doesn't hurt to use individuals who have been well recommended by friends or family. You will also get some good ideas from the different professionals that you may incorporate into your final job.
4. Stick to the plan
This is the final stage. It will be tempting to continue to add things as the projects moves along. With most projects, making a change (not just adding things) will cost you more money. It is very easy to increase the price tag. Believe me, I know from personal experience!
Yes, home renovations can seem daunting. But, with a little planning, patience, and hard work, dreams can and will come true.
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.
Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.